Interstate 15. Headed north from Salt Lake to Wyoming. A truck stop in Idaho. Poverty, poor education, meth, opioids, lack of opportunity, hopelessness, who knows. Walking human wrecks. The old store manager mostly deaf. A kind kid with dead eyes relayed my order, yelling into her ear. Hi skinny arms, homemade tattoos, blurry blue ink. The same thing you see in northeast Vermont, rural New Hampshire. Backwater stops across America. And it’s not that we’re sending their tax dollars abroad for wars and foreign aid, those folks pay next to nothing, it’s just that we’re not taking care of our people.

Overall: “It codifies your culture, your society’s intelligence, your common sense, your history - you own your own data,” said NVIDIA founder and CEO Jensen Huang, shamelessly talking his book, encouraging global governments to each develop their own sovereign AI infrastructure. “You cannot allow that to be done by other people.” NVIDIA GAAP earnings jumped 765% year-on-year. No one had ever seen something like this for a company of its size. But of course, no one has ever seen something that combines elements of the space race, the nuclear arms race, and a race to create a super-human species. In all history, there has never been a race of this magnitude. And in a rapidly changing world that is becoming digitized, it may even be that this is what the early stages of a hot war look like. The world’s most powerful nations, and those companies that have already attained sovereign-like status, are now in an existential competition to find the Holy Grail. China has naturally been denied access to NVIDIA’s technology. Having gutted their greatest tech entrepreneurs in a display of the kind of insecurity reserved for failing autocratic governments, Beijing is now racing to ban short selling of Chinese stocks, lest they continue their chronic decline. “We are worried that Chinese industrial support policies and macro policies that are more focused on supply rather than thinking about where the demand will come from are both careening towards a situation where overcapacity in China is going to wind up hitting world markets,” warned Jay Shambaugh, US under-secretary for international affairs. Treasury Secretary Yellen is also expected to raise Chinese overcapacity with her G20 counterparts when they meet in Sao Paulo later this month. As the vice tightens on China. And we are left to wonder what shape a panic in Beijing will take.

Week-in-Review: Mon: US holiday = quiet markets, Israel said to launch Rafah attack by 3/10 if hostages aren’t released, Houthi’s announce sinking ship for first time, Japan core machine orders -0.7% (-1.3%e), Brazil eco activity 1.36% (0.45%e), S&P closed; Tue: China cuts 5y LPR (reference rate for mortgages) by largest amount since its 2019 inception - 25bps / 1y LPR unch as exp, mins show RBA considered a rate hike, BOE’s Bailey says no need for infl to reach target in order to cut, EU negotiated wage data 4.46% (4.69% previous), Riksbank’s Breman supports a patient approach to cuts, US said to consider 'major sanctions' on Russia over Navalny death, US told allies Russia may deploy a nuclear weapon into space as early as this year, China’s two main stock exch froze accts of major quant HF for dumping $360m of stock within a minute, Poland PPI -9.0% (-8.3%e), S. Africa unemp 32.1% (31.6%e), Canada CPI 2.9% (3.3%e) / Core Trimmed 3.4% (3.6%e), US Leading index -0.4% (0.3%e), S&P -0.6%; Wed: NVDA earnings beat expectations / say that generative AI has ‘hit the tipping point’, US vetoed UN resolution for ceasefire in Gaza, S. Africa announced plans to tap its contingency reserves (GFECRA) - 150bln ZAR - to pay down debt, Fed Minutes a bit hawkish but aligned with recent Fed speakers – concerns around cutting too early, Indonesia CB unch as exp, China limits institutional trading at stock mkt open/close and cracks down on quant funds, Australia 4Q wage price index 4.2% (4.1%e), S. Africa CPI 5.3% (5.4%e) / Core 4.6% (4.5%e), Mexico Ret sales -0.2% (2.4%e), EU cons conf -15.5 as exp, S&P +0.1%; Thu: NVDA strong results takes equity markets to fresh record highs / NKY surpasses 1989 high, Fed Vice Chair Jefferson emphasizes hawkish caution and a nimble approach / Harker warns against premature easing, BOJ’s Ueda says there are signs businesses are lifting wages more, CBRT unch as exp / voices commitment to support ccy / provides hawkish forward guidance by keeping future hikes on the table, BOK unch as exp / gov does not foresee cuts in 1H, EU flash PMIs mfg 46.1 (47e) / serv 50 (48.8e) / comp 48.9 (48.4e), Poland ret sales 4.6% (3.4%e), Mexico final 4Q GDP 2.5% (2.4%e), US init claims 201k (216k e), US flash PMI mfg 51.5 (50.7e) / serv 51.3 (52.3e) / comp 51.4 (51.8e), S&P +2.1%; Fri: Fed’s Waller said jump in CPI warrants caution but still expects cuts will begin later this year / “delaying cuts a few months shouldn’t have big impact”, ECB’s Lagarde characterizes recent wage data as ‘obviously encouraging’, ECB’s Schnabel and Nagel downplay the odds of an imminent ECB cut, Larry Summers warns mkts underpricing the risk of disorder w/r/t upcoming elections, UK cons conf -21 (-18e), China new home prices -0.37% MoM (-0.45%p), Hungary unemp 4.5% (4.3%e), Germany IFO expectations 84.1 (84.0e) / Business climate 85.5 as exp, Poland Unemp rate 5.4% as exp, S&P flat; Sat: Trump wins South Carolina primary, Navy men’s lacrosse loses to Penn State 13-3.

Weekly Close: S&P 500 +1.7% and VIX -0.49 at +13.75. Nikkei +1.6%, Shanghai +4.9%, Euro Stoxx +1.2%, Bovespa +0.5%, MSCI World +1.5%, and MSCI Emerging +1.2%. USD rose +2.3% vs South Africa, +1.7% vs Bitcoin, +0.9% vs Chile, +0.6% vs Brazil, +0.5% vs Russia, +0.4% vs Mexico, +0.2% vs Turkey, +0.2% vs Yen, +0.1% vs Canada, and flat vs China. USD fell -5.2% vs Ethereum, -1.0% vs Sweden, -0.6% vs Sterling, -0.5% vs Australia, -0.4% vs Euro, -0.2% vs Indonesia, and -0.1% vs India. Gold +1.2%, Silver -2.1%, Oil -2.5%, Copper +1.3%, Iron Ore -1.4%, Corn -3.7%. 10yr Inflation Breakevens (EU -4bps at 1.94%, US -4bps at 2.29%, JP +4bps at 1.22%, and UK -4bps at 3.49%). 2yr Notes +5bps at 4.69% and 10yr Notes -3bps at 4.25%.

2024 Year-to-Date Close: Turkey +19.4% priced in US dollars (+25.5% priced in lira), Argentina +14.6% priced in US dollars (+18.9% priced in pesos), Denmark +10.9% in dollars (+13.4% in krone), Japan +9.3% (+16.8%), Ireland +7.9% (+10.3%), Greece +6.9% (+9.3%), S&P 500 +6.7% in dollars, NASDAQ +6.6% in dollars, Netherlands +6.3% (+8.7%), Philippines +6.1% (+7.2%), Saudi Arabia +5.6% (+5.6%), Euro Stoxx 50 +5.4% (+7.8%), Italy +5.4% (+7.7%), MSCI World +5.2% in dollars, Hungary +5.2% (+9.3%), Colombia +4.9% (+8%), Poland +4.8% (+6.1%), France +3.3% (+5.6%), India +2.7% (+2.2%), Malaysia +2.3% (+6.5%), Taiwan +2.1% (+5.3%), Israel +1.8% (+3.1%), Germany +1.7% (+4%), Czech Republic +0.6% (+5.5%), Canada 0% (+2.2%), China -0.3% (+1%), Russell -0.5% in dollars, Indonesia -1% (+0.3%), UK -1% (-0.3%), Sweden -1.1% (+1.6%), Switzerland -1.6% (+3.2%), Spain -1.9% (+0.3%), HK -2.1% (-1.9%), Belgium -2.2% (0%), Mexico -2.3% (-1.3%), Russia -2.4% (+1.4%), Korea -2.7% (+0.5%), New Zealand -2.7% (-0.4%), UAE -3.1% (-3.1%), Australia -3.3% (+0.7%), Singapore -3.5% (-1.7%), Austria -3.6% (-1.5%), Finland -4.3% (-2.1%), Brazil -6% (-3.6%), Thailand -6.1% (-1.3%), Norway -6.3% (-2.4%), South Africa -8.9% (-3.9%), Chile -10.4% (-0.1%), Portugal -11.4% (-9.4%), and Venezuela -13.3% (-12.1%).

Commitments: “I don’t know yet where we’ll find the money, but we need it,” said Boris Pistorius, Germany’s Defense Minster. He had announced that defense spending could rise to as high as 3.5% of GDP. No one asked why with the largest military conflict in Europe since WWII Germany spent 1.6% of GDP on defense in 2023. “We can discuss spending for social issues, for education, for digitalization, for infrastructure and for whatever else,” he added. “But without security, without freedom in security, without secure freedom, everything else is nothing.”

Commitments II: Macron seemed pleased with himself at the press conference. He signed a 10-year defense pact with Zelensky, which means nothing if the war is lost. He pledged up to $3.2bln in 2024 military aid. France trails Germany in supplying military aid to Ukraine. Macron has sent an estimated $685mm in military aid to date. Germany has sent $19bln. The US has sent $47bln and will surely send far more. France and Germany lead Europe by example - which is to say poorly - when it comes to defense spending. France spends 1.9% of GDP. The US 3.5%.

Commitments III: As the US pulls back from the world in fits and starts, post Bretton Woods security commitments will be reconfigured. The world will naturally adjust, as it necessarily does, presenting big opportunities. Germany’s economic model was to import cheap energy from Russia in a deal with devil, to manufacture precision products, and export them to China and others, denominated in a currency undervalued by virtue of a fundamentally flawed currency union. They sought to lead Europe without a commitment to fund its security. That’s ending.

Artificial: “China is a year or so behind the US in AI,” said Valley Boy, somewhere south of San Francisco. “And on top of that, it’s going to be extremely difficult for a police state to manage these models,” he said. “You feed them information, data, images, but can’t really predict their output,” said Valley Boy, Google Gemini’s recent images of female Popes and black Nazi’s fresh in his mind. “Governments will either need to scrub the model inputs or block unacceptable outputs. But the more you distort inputs and outputs, the less competitive these models will be.”

Artificial II: “Sam Altman announced plans to compete with Google in search,” continued Valley Boy. “Looks like a panic move - what you do when you haven’t figured out how to monetize your core OpenAI product,” he said. “To justify a $100bln valuation, you need to convince people you’re going to take a big chunk of a $1trln market. And that’s either online search, or, or, online search,” he said. “The real profits will not go to the ones building these models, which will certainly become ubiquitous, but to guys that sell gold rush shovels like NVIDIA, Google, Microsoft. And to people like us who figure out how to use them.”

Anecdote: “I’m going to tell you about the worst day of my life,” said the Master Sergeant, an Army Ranger, enlisted at 17 years old, three Iraq/Afghanistan tours under his belt, standing on stage. My son Teddy and his four thousand fellow cadets hanging on every word. “I’m lying in hospital, and the WiFi didn’t work, so I got no legs, and now I got no WiFi?” he said, the hall erupted. Master Sergeant was there to discuss sacrifice, service, perseverance. A little IED humor too. “I started opening these gift packages you get from nice people back home. There was a notebook and pencil in mine. A frisbee too,” he said. “I started writing all the things going on in my head. And I wrote so much my pencil got dull,” said Master Sergeant. “But I got no pencil sharpener in my bag. I got no legs, I got a damn frisbee, but I got no pencil sharpener!” Each month a speaker addresses the cadets, imparting wisdom, attendance mandatory, everything mandatory. “And I realized I am the pencil. I am my story.” Twenty-one months after his final reconnaissance mission, Master Sergeant completed his first marathon on prosthetics, with many more to follow, triathlons too. Built a career supporting veteran wellness. Inspiring others. “Each time you run a pencil through a sharpener, the cuts are brutal, the shavings inside are all parts of you, things you’ve shed,” said Master Sergeant. “If a pencil has never gone through a sharpener, it will have never realized its purpose. A pencil is built to be used. You are all pencils,” he said. “And I think what Master Sergeant said hit us all so hard, because he’d really been through the sharpener, came out the other side, and became something incredible, inspirational,” said Teddy.

Good luck out there,

Eric Peters

Chief Investment Officer

One River Asset Management

Disclaimer: All characters and events contained herein are entirely fictional. Even those things that appear based on real people and actual events are products of the author’s imagination. Any similarity is merely coincidental. The numbers are unreliable. The statistics too. Consequently, this message does not contain any investment recommendation, advice, or solicitation of any sort for any product, fund or service. The views expressed are strictly those of the author, even if often times they are not actually views held by the author, or directly contradict those views genuinely held by the author. And the views may certainly differ from those of any firm or person that the author may advise, converse with, or otherwise be associated with. Lastly, any inappropriate language, innuendo or dark humor contained herein is not specifically intended to offend the reader. And besides, nothing could possibly be more offensive than the real-life actions of the inept policy makers, corrupt elected leaders and short, paranoid dictators who infest our little planet. Yet we suffer their indignities every day. Oh yeah, past performance is not indicative of future returns.